WinInfo Daily UPDATE, January 7, 2003

MICROSOFT KICKS OFF BIG WEEK WITH DIGITAL-MEDIA RELEASES

Microsoft kicks off today a week of consumer-oriented software and services announcements with the release of three important digital-media technologies that raise the bar for PC-based multimedia. The company will follow today's releases of Windows Media 9 Series, Windows Movie Maker 2, and Plus! Digital Media Edition with a far wider group of announcements tied to the 2003 International Consumer Electronics Show (CES), which opens tomorrow in Las Vegas, Nevada.

Windows Media 9 Series includes Windows Media Player (WMP) 9 Series, Windows Media Encoder 9 Series, Windows Media Services 9 Series, the Windows Media Audio (WMA) and Windows Media Video (WMV) 9 Series codecs, Windows Media 9 Series Digital Rights Management (DRM) Series, and the Windows Media 9 Series software development kit (SDK). Microsoft will release these products through free downloads beginning today at noon Pacific time, the company says. Versions of WMP 9 are available for Windows XP, Windows 2000, Windows Me, and Windows 98. And to further take advantage of the technical superiority of WMA and WMV over competitors such as MPEG-4, MPEG-2, and other related technologies, Microsoft says it will make its new codecs available for any platform, application, or device and will offer flexible new licensing terms. The company says that licensing Windows Media 9 codecs on non-Windows platforms will cost approximately half the price of MPEG-4 licensing.

Windows Movie Maker 2 takes advantage of advances in WMV and features dozens of new titles and video transitions and effects, as well as an innovative Auto Movie feature that automatically generates professionally edited home movies from raw video footage. Windows Movie Maker 2 will be available only for XP users for free starting tomorrow through Windows Update.

Plus! Digital Media Edition includes several interesting digital-media-oriented applications and marks the first time Microsoft has made a retail software product available for download online. Users who pay $20 for Plus! Digital Media Edition will get a product-activation code that ties the installation to one PC; users are free to give out the software to other users, but they'll have to contact Microsoft electronically and pay $20 to activate the product on their own PCs. In the past, Microsoft implemented product-activation technologies only in core retail products such as Microsoft Office and XP; the company told me that Plus! Digital Media Edition will be the first of many software products Microsoft will market and sell online. The product includes the final WMP 9 version and prompts users to download Windows Movie Maker 2 if they want to install features that enhance that application. For more information or to purchase Plus! Digital Media Edition, visit the Microsoft Web site.

GATEWAY BOMBS DURING HOLIDAYS, PLANS RESTRUCTURING

With another disappointing holiday season behind it, PC maker Gateway announced this week that the company will implement its second major corporate restructuring in 2 years and continue its attempts to return to profitability. Gateway cofounder Ted Waitt, who reassumed the CEO title again when the company began floundering 2 years ago, originally scheduled this past holiday season as the turnaround point. But even though sales did improve somewhat compared with the previous year, net income took a nosedive yet again.

Gateway's problems aren't unique. In a struggling market that Dell dominates, most PC makers continue to lose money. Gateway's market share—once more than 9 percent—now hovers at about 6 percent. And Gateway's revenues during the past 3 years have fallen by more than half to $4.2 billion in 2002. One saving grace for the company, however, is its on-hand cash—about $1 billion, which might help Gateway weather the downturn and absorb the cost of another restructuring.

Gateway's mimicry of Dell's successful low-cost, high-volume sales strategy hasn't helped. Waitt will likely now take a different approach and use the company's 272 retail stores to drive complete-solution PC sales, which include digital devices such as cameras and scanners. Gateway's costly plasma-display screen products—massive flat panels with an average price of $4000—sold out during the holidays, leaving the company with a 2-month backlog but also with a small ray of hope for its new strategy. "We took a huge percentage of \[the plasma TV\] market," Waitt said. "It says the Gateway brand is very strong, and can scale to other \[non-PC\] products. We're going to leverage the assets of our brand, our channel and business model."

So how far in the future is Gateway's turnaround? Even Waitt won't hazard a guess. Like many PC makers, Gateway can only hope that the murmurs of an economic turnaround prove real. In the meantime, market-leader Dell continues to mop up the competition and the market share.

MICROSOFT'S MESSENGER SERVICE IN OUTAGE FLAP

The Microsoft .NET Messenger service, which drives the company's Windows Messenger and MSN Messenger Instant Messaging (IM) applications, suffered a mysterious outage for several hours yesterday morning, leading to speculative reports that the software giant isn't adequately providing backup power supplies and fault tolerance to this critical .NET infrastructure service. However, as of late yesterday, Microsoft said it still doesn't know what caused the outage, which left millions of Messenger users unable to access their IM accounts and, in some cases, Hotmail-based email.

"It's a worldwide outage, and most customers are affected," Bob Visse, MSN director of marketing, told CNET. "We're investigating it, but we do not know what the issue is." Microsoft began receiving complaints about the outage at approximately 6:00 A.M. yesterday; the service was back up by noon. The company said it was "fairly widespread."

Microsoft apologized for the outage and is still investigating its cause. Visse says that such outages are rare and that the .NET Passport service, which performs authentication services for .NET Messenger and Hotmail, is working properly.

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